When is it worth walking away from a deal?
In the last 7 months, we have analyzed 11 offers for the purchase of small manufacturing companies in the Lodz region. In as many as 4 cases, we advised our clients to walk away from the table and break off negotiations, even though meetings had been going on since March. We tell it like it is: not every company that looks nice on a prospectus is worth your money and nerves.
A warehouse full of goods that nobody wants
During an audit at one of our clients in October 2023, we discovered that the declared value of the inventory was overstated by 43,000 PLN. The seller claimed that all components were ready for use. However, our on-site inspection showed that 83 pallets contained parts for machines that had gone out of use over 4 years ago. This was not an asset, but costly disposal waiting for the new owner.
At Consilium Krasiński, we check physically what lies on the shelves, not just what appears in the accounting system. If an owner tries to sell you 'dead' inventory as a full-value product, it's usually just the tip of the iceberg. Hard facts, not promises — that's how we approach the valuation of every square meter of a production hall and every screw in the records.
If an owner hides 83 pallets of scrap, what else will we find in his books in a month?
Mess in employment contracts
In November, we were examining a mechanical workshop employing 14 people. It quickly emerged that 6 key mechanics had no signed non-compete agreements, and their employment contracts were expiring within the next 11 weeks. Buying such a company is a huge risk. The new owner could be left with an empty building and leases to pay, while the entire team moved to a competitor a block away.
Without legal jargon, we explained to the client that without annexing these contracts before the transaction, the price should drop by at least 17%. The seller didn't want to hear about it, so we advised withdrawing from talks. We sit at the table with you and make sure you don't buy an empty shell that will fall apart in the first month after the takeover.
Unrealistic growth forecasts made on the fly
A frequent problem we encounter in Lodz is financial forecasts based on 'hope'. One entrepreneur wanted to sell a transport company, claiming that revenues would grow by 23% within a year. However, analysis of documents from February 2024 showed that 2 of his 3 main contracts end in June and there is no guarantee of their extension. This is not a foundation for a safe business.
Instead of looking at colorful charts, we analyze the history of payments from the 47 largest contractors over the last 3 years. If real numbers show a decline, and the seller stubbornly claims there will be a record, it means he's not playing fair. At Consilium Krasiński, we always focus on realism. It is better to lose a month on negotiations than 400,000 PLN on a failed investment.
Sudden departures of key personnel
In June of this year, while finalizing talks for a small printing house, we noticed a disturbing movement. Two main technologists who had worked there for 9 years suddenly submitted their resignations. It turned out they knew about a hidden defect in the machines that the seller had not mentioned to us. Their departure was to take place exactly 14 days after our client signed the notarial deed.
We tell it like it is: technology and machines are important, but in small companies, it's people who hold everything together. If the operational brain of the company flees before the transaction, for us that is red flag number one. Thanks to vigilance and talks in the background, we saved the client from taking over a plant that no one would know how to operate for the next half year.
When people who have worked at a company for 9 years flee, it's a sign that the ship is taking on water.
The decision to walk away
Walking away from negotiations is not a failure. It is a professional business decision. We often see emotions taking over because a client has already invested time and would like to get it over with. Our task then is to keep a cool head. We analyze the financial risk — if potential contractual penalties exceed 12% of the company's annual profit, the transaction ceases to make economic sense.
Our 8 years of experience in M&A has taught us that the best deals are those where both sides know where they stand. If you feel the seller is twisting things, trust your intuition and our numbers. Book a 20-minute phone call, and we will analyze your current situation without beating around the bush. We will help you assess whether it's worth fighting further or if it's better to look for another opportunity.
